It’s looking like retirement savers will only see a $500 increase to the amount they can contribute to their 401(k), 403(b) or 457 plans in 2025, according to the newly updated final forecast for the 2025 IRS contribution limits from Milliman.
In this new final forecast before official IRS limits for 2025 are announced later this year, Milliman decreased its prediction for the maximum deferral for DC plans from $24,000 to $23,500, based on the latest inflation figures. For 2024, the elective deferral limit was also increased by $500 compared to 2023.
Meanwhile, Milliman’s prediction for the maximum annual addition for defined contribution (DC) plans—including employee and employer contributions—remained at $70,000, which would be a $1,000 increase from the 2024 limit of $69,000. In its June 2024 forecast, Milliman had the increase pegged at $2,000 to $71,000.
“The maximum amount between the employer and employee that can be contributed in 2025 to a DC plan is increasing to $70,000, but this limit does not include catch-up contributions,” Nina Lantz, a principal at Milliman and Director of Employee Benefits Research, told 401(k) Specialist. “The SECURE 2.0 Act allows plans to raise the catch-up contribution limit for participants aged 60 to 63. Starting in 2025, these participants may be able to make catch-up contributions of up to $11,250, a significant jump from the current $7,500, providing even more opportunities to save for retirement.”
That’s still a smaller increase than Milliman was forecasting earlier this year, when the catch-up contribution limit prediction was $8,000 instead of $7,500. This in turn lowered Milliman’s catch-up contribution limit prediction for those aged 60-63 from $12,000 to $11,250.
Importantly, the new Milliman forecast notes that if the change in Consumer Price Index in September is more than 0.25%, the 2024 maximum deferral for DC plans will be $24,000 instead of $23,500 and the catch-up contribution limit for DC plans will be $8,000 rather than $7,500 (and the catch-up limits for those aged 60 to 63 will be $12,000 rather than $11,250).
The CPI as reported by the BLS for the 12 months ended August 31, 2024, was 2.5%, down from 2.9% for the 12 months ended July 31, 2024. It is down from the 3.7% annual change in the CPI as of September 30, 2023, and below both the 2.8% average annual change over the past 10 years and the 2.6% average annual change over the past 20 years.
The Milliman report features a detailed chart that includes all of its 2025 IRS Limits Forecast figures using actual FFY 2024 CPI as of August 31, 2024.
Mercer: Increase amount too close to call
Mercer also recently released projected 2025 retirement plan limits, but noted that at this point the amount of the increase for 401(k), 403(b) and eligible 457 plan elective deferrals (and designated Roth contributions) will be either $500 or $1,000—from $23,000 in 2024 to either $23,500 or $24,000, depending on September inflation figures that will be released in October. The Mercer projection said a moderate but not unusual amount of inflation in September will result in the higher limit.
Like the Milliman forecast, Mercer also has the 415(c) DC plan maximum annual addition pegged at a $1,000 increase from $69,000 to $70,000.
How 2025 IRS limits will be calculated
Milliman, one of the world’s largest independent actuarial and consulting firms, released its initial 2025 contribution limits forecast back in March, which can be found here. It includes detailed information about the limits for qualified retirement plans, how these limits are calculated, how they are affected by SECURE 2.0, and why they may be relevant for certain plan sponsors.
The official 2025 IRS limits will be calculated using the 2024 limits and applying a factor that is based on the CPI in federal fiscal year (FFY) 2024. FFY 2024 is defined as the 12-month period from October 1, 2023, to September 30, 2024.
After the close of FFY 2024, the IRS will use the 12 months of reported CPI to calculate the 2025 IRS limits. (The calculations are more complex than just multiplying the 2024 limits by the CPI, but those details are omitted here.) The 2025 IRS limits are expected to be released by the IRS in mid to late October or early November 2024. The official 2024 limits were announced on Nov. 1, 2023.
EDITOR’S NOTE: This article has been updated to include data from the Mercer projected 2025 retirement plan limits report.
SEE ALSO:
• 2025 401(k) Contribution Limit Forecast: $1,000 Increase on Tap?
• IRS Bumps 2024 401(k) Contribution Limit to $23,000
• HSA Contribution Limits Increased Slightly for 2025